Germany Flexes Financial Muscle in Push for EU ‘Solidarity’

German Chancellor Angela Merkel’s government called for a fundamental overhaul of European Union finances as Britain’s exit from the 28-nation bloc is about to tear a hole in the group’s 140 billion-euro ($172 billion) annual budget.

With a major net contributor set to leave the union next year and populist movements gnawing at the bloc’s bonds, Germany is seeking to take advantage of its additional financial leverage to get wayward EU states to fall back into line. The message is play ball or risk losing out on funds.

“Solidarity is one of the EU’s fundamental values,” the German Finance Ministry said in a document obtained by Bloomberg News. “This should express itself in the Member States’ showing solidarity in the different policy areas and should also be reflected in the EU’s finances,” according to the policy paper, dated Jan. 25.

Germany is the biggest contributor to the EU budget. Its relative power will increase as a result of Brexit, which is set to create a gap of about 10 billion euros a year as of 2021. The looming budget crisis has become a political issue.

EU Budget Commissioner Guenther Oettinger has said the hole should be filled “using 50 percent savings, 50 percent fresh money.” While Austrian Chancellor Sebastian Kurz told Standard newspaper this month that taxpayers’ money must be used “more sparingly,” French President Emmanuel Macron has also suggested that aid should be linked to recipients’ adherence to democratic standards.

‘Community of Peace’
Germany’s position makes a reference to the French proposal, saying that the EU regards itself as a “community of peace, freedom, democracy, human rights and the rule of law,” principles that are important preconditions for a sound investment environment.

“We have therefore called on the Commission to examine the extent to which receiving EU cohesion funding can be linked to compliance with fundamental rule of law principles,” Germany said. “We welcome the fact that it has taken up this idea.”

The EU budget should be transformed into an instrument to finance common priorities such as security in a “less comfortable world,” rural development, as well as a tool to support structural reforms to help prepare for future crises, it said. Payments should also take into account the uneven distribution of refugees in the bloc, according to the paper.

In a joint proposal with his Italian counterpart Pier Carlo Padoan, acting German Finance Minister Peter Altmaier said the EU budget overhaul should focus on six key areas that are “public goods” for all Europeans such as security, migration, cross-border investment and climate protection.

“In view of the major challenges to the future of Europe, Germany intends to continue to make an appropriate contribution,” the Finance Ministry said. “At the same time, it is clear that the future funding system also needs to ensure fair burden-sharing.”
Source: Bloomberg